The manager of the world’s largest mining fund has joined industry ­executives in warning that the Gillard government’s resource tax has done long-lasting damage to Australia’s investment reputation.

Evy Hambro, who manages $US35 billion ($38.8 billion) of ­resources funds from London, said the higher tax burden was a “clear negative’’ when comparing Australia with other investment destinations and that rival resource countries had used it to sharpen their appeal to miners and investors.

“Australia has done some damage, that damage could be lasting to its reputation as a safe haven for ­investors" in the resources sector, Mr Hambro told The Australian ­Financial Review.

“We’ll have to see the result of this election on Saturday to know how much."

The criticism echoed comments from Australian resource investor Paul Espie about rising “country risk’’ and came as results from steel makers and mining contractors ­confirmed that the tax debate had ­affected the level of activity and earnings across those industries.

Junior miners in Western Australia are mounting an aggressive ­advertising campaign against the minerals resource rent tax, the ­watered-down version of the original resource super profits tax that the ­Labor government plans to introduce from 2012 if it is re-elected at the weekend. Yesterday, West Australian Premier
Colin Barnett
backed a ­recent international survey by Canada’s Fraser Institute that found Australia’s ranking as a stable mining investment destination had slumped from 18 to 31 out of 51 global jurisdictions, by declaring that senior business and political leaders had contacted him to express their concerns about changes to Australia’s mining tax regime.

“There is no doubt that the attempt by the federal government to introduce a [mining tax] has sent shockwaves around the international investor community," he said.

“And there is a great anxiety not only by mining companies, but also their backers. I have had formal ­complaints from the US, Japan and China about these actions of the ­federal government – it is seen as high sovereign risk to unilaterally impose a whole new tax structure on the mining ­sector."

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Mr Barnett would not detail who had contacted him, but said “senior" Chinese politicians were among the callers.

Soon after Prime Minister
Julia Gillard
took office, her government worked out a compromise with ­major miners
BHP Billiton
,
Rio Tinto
and Xstrata that watered down the proposed RSPT into the ­revised MRRT.

The changes included a reduction in the headline tax rate from 40 per cent to 30 per cent, a more generous profit allowance and the application of the tax only to earnings from coal and iron ore, versus the RSPT, which would have applied to products such as base metals, gold, steel, coal seam gas and even sand and gravel.

The compromise, combined with the promise of a consultative committee staffed by former BHP Billiton chairman Don Argus, placated the major miners, which had threatened to stall new investment because of the RSPT.

Since the compromise last month, Rio Tinto and Xstrata have approved more than $US2 billion of new ­investments in the coal and iron ore industry in Australia.

“We have seen projects restarting, and big ones," said
Richard Leupen
, the chief executive of service provider
UGL
, which reported a record profit for its mining division yesterday as part of a flat group result.

“Certainly the big players in iron ore and the big players in coal and the big players in energy have got themselves back in a place where they are ready to commit money again."

However, the compromise has failed to placate smaller miners, such as
Fortescue Metals Group
,
Atlas Iron
and
BC Iron
, which did not have representatives present in the negotiations with the government.

Fiona Harris, who is on the board of
Altona Mining
, which operates in Finland and Mt Isa, Queensland, said the watered-down tax would still have a big effect on Australian ­miniers and the country’s reputation as a stable investment destination.

“I have no faith in the consultation processes that I have seen from the current government at all, because there have been so many mess-ups along the way, such as with the employee share scheme [legislation], for example," she said.

id yesterday that even in its revised form, the government’s proposed minerals resource rent tax was having a negative impact on the nation’s reputation as a stable investment destination.

Ms Harris, who was recently appointed as a director of Sundance Resources, which lost its entire board in an African air disaster in June, also serves on the board of Altona Mining, which operates in Finland and Mt Isa in Queensland.

“In Finland the government through its sovereign fund invests in our company, they provide us with the grants needed to build the infrastructure; their local communities are totally supportive of everything with what we are trying to do in building the mine over there and you contrast that with what you see in Australia," she said.

The former KPMG partner said that even the watered-down minerals resources rent tax would still have a “significant" impact on Northern Territory iron ore miner Territory Resources, another of her boards.

On the east coast, the chairman of $4 billion Queensland coalminer
New Hope
,
Robert Millner
, yesterday sent a letter to shareholders warning that the miner’s initial ­modelling of the MRRT showed it would reduce the company’s shareholder returns by more than 10 per cent over the longer term.

Mr Millner asked shareholders to consider the potential impact of the MRRT when casting their votes on Saturday.

In the meantime,
BlueScope Steel
and
OneSteel
, which rely on mining customers to buy their products, said this week that the uncertainty over the tax had hit their full-year results.

“I think the government shot us in both feet with the resource super profits tax, which weighed not only on mining but on mining-related communities in regional Australia," One­Steel chief executive
Geoff Plummer
said yesterday. He said he hoped the situation would improve following the election, but added that was subject to who controlled the balance of power in the Senate after the election. Greens leader
Bob Brown
has said his party could push for a 50 per cent headline rate on the tax.

BlueScope Steel’s chief excecutive, Paul O’Malley, said he hoped ­uncertainty would end after the poll.

“We saw real-time some projects being deferred when that policy was announced. There was still underlying activity. But we have customers’ orders that were put on hold and are still on hold pending the resolution of where that tax might come out."

Blackrock’s Mr Hambro, who manages the $US12.5 billion World Mining Fund and is BHP’s biggest shareholder, said the perception of sovereign risk in Australia had increased in the minds of investors following the introduction of the tax.

“Countries which have been viewed as less attractive than Australia are now actively competing for investment," he said.

Far from sparking a wave of similar tax rises in resource-rich countries such as Canada and Brazil, the “lack of contagion around the world" as those markets enjoyed a new-found competitive advantage had been a surprise, Mr Hambro said.

Paul Espie, of Pacific Road ­Resources, said yesterday that the MRRT would deter investment in Australia if the political uncertainty continued after the election.

Mr Espie said the MRRT had not yet changed the portfolio allocation of his $320 million of funds under management, but that Australia’s growing country risk, as opposed to sovereign risk, was an issue for his offshore mining investors.

“I visited almost 30 institutional investors in the US last month . . . and almost invariably the first question was: ‘What is going on in your ­country? Are you shooting yourself in the foot?’ "

But expatriate ­Morgan Stanley chief executive James Gorman said while a consultative process with industry appeared to be the ­better option, the proposal had not introduced risk around ­Australia.

“I think the international community is a little more patient, or less judgmental," Mr Gorman said. “So no, I don’t think it’s ­­fun­damentally damaged Australia’s ­reputation."